Eight Stupid Rules that are a Drag on the U.S.

As publisher of the Cabot newsletters, I have a little more
license than most of the contributors of these Cabot Wealth
Advisories to let my mind roam. Today we roam in eight different
directions, surveying what might loosely be titled "Eight Stupid
Rules that are a Drag on the U.S. Economy" before finishing, as
usual, with a timely investment recommendation.

#1. The American Rule
Americans litigate far more often than the residents of other
countries. In fact, the share of our economy spent on litigation is
at least twice that of Germany, France, England and Northern
Ireland, respectively. Why? Because our system of risks and rewards
is screwed up. In every other country in the world, the loser pays
at least part of the other party's legal fees; this rule not only
inhibits the filing of nuisance suits with little merit, it helps
encourage law-abiding behavior. In the U.S., however, the American
Rule encourages the filing of nuisance suits that clog the court
system, rewarding above all the lawyers. That's one reason the U.S.
has more lawyers per capita than any other country; there's a
lawyer for every 265 Americans. And because the people who "run"
the country in Washington are generally lawyers, there's little
incentive to change.

#2 The Continuing Federal Prohibition of Marijuana
Nearly a century ago, we learned that prohibiting the production,
trade and consumption of goods that the public wanted diverted
public money to a vast criminal black market that supplied that
want-and gave us the likes of Al Capone, Machine Gun Kelly and
Dutch Schultz (real name Arthur Flegenheimer). Today we have the
same situation with marijuana. Polls show that 56% of Americans
support legalizing and regulating cannabis (the tax revenue would
be substantial) and 80% support medical marijuana. Yet an estimated
$30 billion a year continues to go to law enforcement to fight the
drug war, in the process perpetuating lawlessness on both sides of
our Mexican border.

#3 The U.S. Postal Service Monopoly
Thanks to the Internet, the U.S. Postal Service has become a
slow-motion train wreck. In response, the U.S.P.S. is cutting
costs-by reducing service to its customers!-but doing nothing to
address the main problem. And Congress just kicks the can down the
road. The radical solution is to free the U.S.P.S. from its
outdated mission and to allow free-market competition so we all get
better service.

#4 Taxi Medallions
The conceit that city fathers know best how many cabs is the right
number ignores the wisdom of the free market and perpetuates a
market that makes medallions so expensive only professional
companies can afford them … which raises costs for customers.

#5 Liquor Licenses
Ditto.

#6 Immigration Laws
Forget about the problems at the Mexican border. Ignore the
Miami/Cuba issue. The real tragedy of our immigration laws is that
we continue to force visitors who graduate from our excellent
colleges to return to their home countries! This brain
drain-particularly in math and science-weakens American
competitiveness while strengthening other countries. Even Bill
Gates couldn't get Washington to act, though signs are that change
will be achieved eventually.

#7 Ethanol and CAFE laws
The requirement that ethanol be added to gasoline has made corn-and
everything made from corn-more expensive, while contributing to the
global food crisis. And the labyrinthine Corporate Average Fuel
Economy (
CAFE
) requirements have us forced us to drive smaller, lighter, less
safe cars or trucks and SUVs (which remain exempt) rather than
giving us the choice of keeping safer heavy cars and driving less.
If these laws were repealed, and replaced by a simple national gas
tax, we'd have cleaner air, cheaper food and more choices!

#8 The Farm Bill
Born as a helping hand for struggling small farmers, it now rewards
the largest professional agricultural companies like Butterball,
Tyson, Sunkist, Cargill and Monsanto. It encourages the production
of junk food-through subsidies for sugar, corn and high-fructose
corn syrup-thus contributing to the epidemic of obesity and
diabetes in the U.S. And it includes the Supplemental Nutrition
Assistance Program (formerly known as food stamps), which is a nice
idea but poorly implemented; I recently stood in line behind a
woman who used hers to buy a jug of wine. (It was made by Gallo,
one of those large agricultural companies that know how to play the
game in Washington.)

Now here's a question for you.

Which of these eight "Stupid Rules" bothers you the most?

Which do you disagree on?

If you let me know, I'll tabulate the votes, report the results
next week, and write more about the top issues! Just hit the reply
button and let me know.

---

Moving on to investing, we've now had 10 solid weeks of upside
market action. The Advance-Decline line has been strong. The number
of stocks hitting new lows has shrunk to bull market levels. And
market leadership has shifted from defensive sectors like
utilities, food and big medical to growth-oriented sectors like
semiconductors, e-commerce and specialty retail.

Yet the man on the street is far from bullish! Economic uncertainty
remains the order of the day! True, the European situation appears
less perilous than it did previously, but worries about the future
of the U.S.-including Medicare, tax rates, employment rates, the
price of gasoline and more-are so all-consuming that there is
little interest in the stock market!

Which, in the perverse logic of Wall Street, means there are likely
many more months of upside ahead for this bull market!

But where to invest?

Some of the greatest growth sectors in this market, as in previous
bull markets, involve the companies that make the Internet hum,
from chipmakers to interface hardware makers to companies that
promise security to companies that run the software and hardware
that make up the cloud.

One of my favorites today is oddly-named
SolarWinds (
SWI
)
, which is in neither the solar nor the winds business.

Here's what Monday's recommendation in C
abot Top Ten Trader
said:

"With four appearances in 2011 and five (so far) in 2012,
SolarWinds is making quite a mark in
Cabot Top Ten Trader
. The company's lineup of IT management software is very attractive
to the people who manage corporate computer networks, reducing
system downtime, increasing performance and monitoring patches,
settings and memory storage. The company's appeal shows up in its
consecutive years of 30% revenue growth in 2010 and 2012 and its
40% revenue bump in Q2. The company's after-tax profit margin of
38.7% in Q2 is just the latest of 14 quarters of margins greater
than 30%. SolarWinds has more than 95,000 customers worldwide,
ranging from Fortune 500 companies to small businesses. Customers
are often attracted by the free downloads of the company's
software, then sign on for licenses (which accounted for 47% of
2011 revenues) and maintenance and other services that brought in
the other 53%. And they stay signed on, leading to a stream of
recurring revenue."

SWI's chart features two big spikes higher this year, both sparked
by unexpectedly strong earnings releases, the latest of which was
in early August. Since then, the stock has consolidated that gain,
trading between 52 and 56, with an upward bias. In the meantime,
the stock's 25-day moving average has caught up, and now lends
support (the 50-day moving average is down at 49).

If the story appeals to you, you could simply jump on board here
(hopefully after researching the company more thoroughly for
yourself). Even better, you could take a trial subscription to
Cabot Top Ten Trader
and keep abreast of editor Mike Cintolo's latest recommendation on
SWI, as well as other high-potential leading stocks.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Publisher
Cabot Wealth Advisory

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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